Glossary

Implicit Tax

Lower (higher) before-tax required returns on assets that are subject to lower (higher) tax rates.

Implied Volatility

The volatility that is implied by an option value given the other determinants of option value.

Import

Any resource, intermediate good, or final good or service that buyers in one country purchase from sellers in another country.

Import License

A document required and issued by some national government authorizing the importation of goods into their individual countries.

Import licenses

Licenses required by some countries to bring in a foreign-made good. In many cases, import licenses are also used by the issuing country to control the quantity of imported items.

In-the-money Option

An option that has value if exercised immediately.

Income Baskets

In the U.S. tax code, income is allocated to one of a number of separate income categories. Losses in one basket may not be used to offset gains in another basket.

Income Statement

Financial report that summarizes a firm's performance over a specified time period.

Incremental IRR

Internal Rate of Return (IRR) on the incremental investment from choosing a large project instead of a smaller project.

Indemnity Clause

A clause in which the one party indemnifies the other. In leasing, generally a clause whereby the lessee indemnifies the lessor from loss of tax benefits.

Independent Project

A project whose acceptance or rejection is independent of the acceptance or rejection of other projects.

Index Futures

A futures contract that allows investors to buy or sell an index (such as a foreign stock index) in the futures market.

Index Options

A call or put option contract on an index (such as a foreign stock market index).

Index Swap

A swap of a market index for some other asset (such as a stock-for-stock or debt-for-stock swap).

Indication Pricing Schedule

A schedule of rates for an interest rate or currency swap.

Indirect Costs of Financial Distress

Costs of financial distress that are indirectly incurred prior to formal bankruptcy or liquidation.

Indirect Customers

The end-users (e.g., consumers) of the products and services purchased from the wholesalers, retailers, and consignees - the direct customers of the seller.

Indirect Diversification Benefits

Diversification benefits provided by the multinational corporation that are not available to investors through their portfolio investment.

Indirect Exporting

Export products to foreign markets by using an intermediary, usually export trading company based in the exporter’s country.

Indirect Terms

The price of a unit of domestic currency in foreign currency terms such as DM1.5272/$ for a U.S. resident (contrast with direct terms).

Infant Industry Argument

The infant industry argument is a rationale for the “temporary protection” of a new industry or firm in order to help it become established domestically and later become competitive worldwide. These protections consist of tariff and non-tariff barriers to imports, preventing global competition from entering the market.

Inflation Rate

The general increase in the price level herein measured by the growth rate in the GNP Implicit Price Index or the general price deflator.

Informational Efficiency

Whether or not market prices reflect information and thus the true (or intrinsic) value of the underlying asset.

Integrated Financial Market

A market in which there are no barriers to financial flows and purchasing power parity holds across equivalent assets.

Intellectual Property

Material or communicable result in forms of discoveries, inventions, designs and literary and art works of scientific, humanistic, literary, and artistic endeavor. It includes, but is not limited to, works in the form of scientific discoveries and inventions, designs, patents, trademarks, books, monographs, papers, paintings, drawings and sculpture, performances, computer software, and lecture and conference presentations.

Intellectual Property Rights

Patents, copyrights, and proprietary technologies and processes that are the basis of the multinational corporation’s competitive advantage over local firms.

Inter-American Development Bank

A regional development bank designed to promote sustainable economic development in the Western Hemisphere. Its headquarters are located in Washington, D.C.

Interbank Spread

The difference between a bank’s offer and bid rates for deposits in the Eurocurrency market.

Interest Rate Risk

The risk of unexpected changes in an interest rate.

Interest Rate Swap

An agreement to exchange interest payments for a specific period of time on a given principal amount. The most common interest rate swap is a fixed-for-floating coupon swap. The notional principal is typically not exchanged.

Intermediated Market

A financial market in which a financial institution (usually a commercial bank) stands between borrowers and savers.

Intermodal

The use of two or more modes of transportation to complete a cargo move; truck/rail/ship, or truck/air, for example.

Internal Market

A market for financial securities denominated in the currency of a host country and placed within that country.

Internal Rate of Return (IRR)

A discount rate at which the net present value of an investment is zero. The IRR is a method of evaluating capital expenditure proposals.

International Accounting Standards Board (IASB)

The International Accounting Standards Board (IASB) is an independent, privately funded organization that sets international accounting standards. The IASB is committed to developing a single set of high quality, understandable and enforceable global accounting standards that require transparent and comparable information in general purpose financial statements.

International Asset Pricing Model (IAPM)

The international version of the CAPM in which investors in each country share the same consumption basket and purchasing power parity holds.

International Bank for Reconstruction and Development

Also called the World Bank, an international organization created at Breton Woods in 1944 to help in the reconstruction and development of its member nations.

International Bonds

Bonds that are traded outside the country of the issuer. International bonds are either foreign bonds trading in a foreign national market or Eurobonds trading in the international market.

International Chamber of Commerce (ICC)

International non-governmental body concerned with promotion of trade and harmonization of trading practice. Responsible for drafting and publishing.

International Energy Agency (IEA)

The IEA is an autonomous agency linked with the Organization for Economic Cooperation and Development (OECD). It is the authoritative source for energy statistics worldwide and an energy policy advisor for 26 member countries. It was founded during the oil crisis of 1973-74 and was initially focused on coordinating efforts between member countries in times of oil supply emergencies. Since then it has expanded its role to encompass climate change policies, market reform, energy technology collaboration, and outreach to the rest of the world.

International Labour Organization (ILO)

The International Labour Organization is the UN specialized agency which seeks the promotion of social justice and internationally recognized human and labour rights. The ILO formulates international labour standards in the form of conventions and recommendations setting minimum standards of basic labour rights.

International Monetary Fund (IMF)

An international organization designed to promote global economic stability and development. It compiles statistics on cross-border transactions and publishes a monthly summary of each country’s balance of payments.

International Monetary System

The global network of governmental and commercial institutions within which currency exchange rates are determined.

International Organization for Standardization (ISO)

ISO is a worldwide federation of national standardization bodies of more than 140 countries. Established as a non-government organization in 1947, it develops international standards and publishes them. All branches other than electrical engineering standards are within the scope of ISO.

Intervention

The efforts undertaken by a country or its central bank to affect the price of the country’s currency on the exchange market. This can be done either through the government buying or selling large quantities of the currency to affect total supply, or by the central bank changing interest rates to affect the cash flow into the country.

Intrinsic Value of an Option

The value of an option if exercised immediately.

Investment Agreement

An agreement specifying the rights and responsibilities of a host government and a corporation in the structure and operation of an investment project

Investment Opportunity Set

The set of possible investments available to an individual or corporation.

Investment Philosophy

The investment approach (active or passive) pursued by an investment fund and its managers.

Invisible Barriers to Trade

Government regulations that do not directly restrict trade but have a hindering effect on through the use of excessive and obscure requirements on goods before they can be sold, especially imported goods. While known to local business people, foreign investors are not aware of these conditions, making them “invisible.” Labeling requirements or other sorts of measurement or sanitary standards would be an example of this.